John McDonnell, LEAP Chair (This article first appeared on Guardian Comment is Free)
The British government has announced a £50bn part-nationalisation scheme. As someone who has been calling for the nationalisation of the banking sector since this crisis began, I should be satisfied.
However, as more details of this package emerge left economists and Labour MPs are increasingly alarmed. The deal is incredibly reckless: the government will only take preference shares in the banks in exchange for a massive investment of taxpayers' cash. The only potential advantage for taxpayers is in dividend payments, if there are any, crucially though the government will have no controlling stake. This in effect is handing over taxpayers' money to the very people who led these banks to the brink of collapse.
If the government is injecting public money, it should also take the right to oversee board appointments, executive pay, and future business operations. The government argues that by taking preference shares, the taxpayer will have first call on dividends. However, the only banks that will come forward to use this £50bn facility will be those in trouble. The market capitalisation of these banks has only been sustained at all by the prospect of a government bail out. Many of these banks are actually bust. Therefore there will be no dividends, we are throwing good public money after bad.
The government should be ensuring the public is protected through cuts in consumer borrowing rates – ensuring that people do not default on their debt and mortgage payments; giving a no-repossession guarantee, providing people with a "right to stay" in their homes – by converting repossessions to social rentals; and securing the jobs of those workers now threatened with redundancy as their bosses' kamikaze capitalism unravels.
But to do that, we would have to take a controlling stake. We should have nationalised to stabilise, with control for the taxpayer to have scrutiny of the banks' accounts, representation on the boards, a pay cap for bank directors and the end of excessive bonuses.
This may prop up a failing system in the short term, but in the medium to long term this deal will have to be paid for and this can only come through either tax rises or (more likely) through public expenditure cuts. This will exacerbate the recession by reducing demand. So while the package might prop up the banks in the short term, it risks further damaging the entire economy in the long term.
This deal is like your neighbour going on a massive spending binge – throwing a party, buying a new car, going on holiday – and then sending you the bill. Taxpayers will end up paying doubly, once through loose subsidies to dodgy banks and the second time as the recession bites and they risk losing their jobs, homes and going further into debt.
At that point they will rightly be asking the government: "Where is the bailout for the British public?"